Dubai: Calls to Lift Immunity of Officials

Copyright The National Abu Dhabi

“If we want to recollect the wasted public money, everybody guilty has to be held accountable and those suspected need to be questioned regardless of their rank,” Gen Tamim told a press briefing. 

With a relative handful of cases - eleven - the Government of Dubai appears to have found DH3.58 billion ($975 million) in "lost" money.   So far 63 individuals have been identified, excluding those Lt. General Khalfan Tamim wants stripped of immunity.

This latter group is key for two reasons.

First, it doesn't include SR from Canada or JK from England.  But rather locals.  Very senior locals if they hold immunity.  If the Government of Dubai is serious, it is precisely this group that it needs to prosecute.  But in doing so it faces the problem of the societal disruptions this may cause.  The recent law to encourage the restitution of stolen funds may  well be an attempt to avoid or minimize such problems.  

Second, much larger sums are likely involved given these individuals' positions.   With US$60 to $80 billion of easy money sloshing around the Emirate there were ample occasions for "commissions",  bribes, overcharging, tag-along deals.  I suspect it's going to be quite easy to find individuals who by themselves are AED 3.58 billion men.

All this shouldn't be a surprise to anyone with a knowledge of regional business practices or anyone who was paying attention to the early signs - Philip Thorpe's comments in 2004 and the first round of corruption that became evident in 2008.  

Sadly, the Government of Dubai has not given strong anti-corruption signals in the past.  Thorpe's abrupt and harsh dismissal was a very clear message that the "old ways" of doing business were just fine even at the "Western" DIFC.  The pardon of the former Head of Dubai Customs another.  Though to be perfectly fair:  if we're going to be casting stones at corruption, we can focus on more local targets.  It's harder to throw a stone all the way to the UAE with the same velocity and impact as one closer to home.

Aayan Leasing and Investment - Restructuring Proposal

AlQabas quotes an informed source that Aayan's restructuring proposal contemplates a two year delay before starting assets sales.  During the interim Aayan will use its working capital to make  debt service payments.  No doubt with no or minimal principal payments during this period.  The goal is to allow time for markets to recover so that a higher value can be obtained for Aayan's investments which are primarily on the Kuwait and Saudi stock exchanges.  The company is reportedly planning a meeting with its bankers in the "coming days" to try to persuade the holdouts to agree to the proposal and get a "final read" on their position towards implementing the plan.

The last major loan was April 2008, when HSBC and Standard Chartered arranged a US$175 million murabaha facility.  13 participants in all.  Other than the two arrangers, Bank of Bahrain and Kuwait, Doha Bank, First Gulf Bank, KFH Malaysia, Emirates International Bank, Arab Investment Company, Asia Islamic Bank, and Nour Islamic Bank.  Plus some other "international" banks.

Initially Aayan's proposal appears a sensible approach.  But the decision to wait or fire sale  assets depends on the quality of the assets and whether there is a reasonable expectation they will recover.  Aayan's creditors have that information not AA.

Interestingly, Aayan's 30 September 2009 financials show KD 570 million in assets and KD 115 million in shareholders' equity (including some KD 44 million in minority interests).  As such, it would appear that creditors might be reluctant to wait for an asset rebound.  However,  among its assets, Aayan has KD 122 million of "Islamic Financing Receivables".  A few placements with other companies in constrained circumstances (e.g. Global or The Investment Dar) and these assets might be a lot less liquid than their contractual maturities would suggest.  And perhaps subject to less than full recovery.  

A bit of background on Aayan's default.  In 4Q08, Aayan defaulted on KD 51.6 million in murabaha payables and then suspended payment on the rest.  Total murabaha at 31 December 08 were roughly KD 400 million.   3 banks with exposure of KD 136 million agreed to assist with a debt restructuring.    Later Aayan got extensions of maturities to April and June 2009 from all but one creditor - a local money market fund who Aayan owe some KD 32 million.  It's been in discussions with creditors since then to come up with a deal.  At one point, it announced it had hired Tijari Finance (an affiliate of Commercial Bank of Kuwait) to assist it with the process.

Earlier posts on Aayan can be found using the label "Aayan" on the SAM home page.

Link to the KSE page on the company here.

New Dubai Government Media Office

Established as WAM notes "to enhance channels of communications with the local, Arab and international media community and mobilise resources and potentials necessary for conveying an accurate image of events going on in Dubai and delivering Dubai message via clear, objective AND affective style at bar with the highest international recognised professional standards and practices."

I suspect that's "effective style at par".

However, since journalists (particularly those impudent Western ones) are known  for frequenting bars, this could be quite a savvy strategy.  Chat them up in the bar, buy a few drinks.  Maybe a way that space at the top of the Burj Khalifah could be put to good use.  The Tip Top Tap.  And perhaps a Nady Al-Iftar.  (Apologies to the Allerton, though the TTT has been closed for many a year now).

Or maybe that's an English law reference as in "If you print something negative, we'll see you in court".   They say that some in Dubai see Singapore as their model.

Anyways, hopefully, the new office's press releases will be a bit more carefully crafted.  Or they'll provide WAM with better English translations.

Here at SAM we're filing this in multiple files as the tags indicate.

The two most important are:

1. "Лучше поздно чем никогда" Of the two this one is the most important.   One should learn from one's mistakes.  And it's never too later to start.  Especially in correcting one's mistakes in one's own blog!
   
2. Politically correct.  All the news "that's fit to print" fits the government line.  It is important to correct all that inaccurate press reportage out there.
   

Construction Industry - Background Primer

The Real Nick, who advises he works in the industry, has contributed some insightful comments. 

If you're not familiar or would like to check what you think you know, suggest you check out the comments here and here.

Burj Khalifa: Meeting Space at DH10,000 An Hour

The National carries an article about the cost of renting meeting facilities at the BK.

Some quotes from the article and comments.

1. High-flying businessmen will be able to host their board meetings on the uppermost floors of the Burj Khalifa when the commercial space opens this year.  AA;  Not sure if "high flying" is intended as a pun - in either of the two senses that occur to AA.
2. “At the top it’s very small space,” Mr Alabbar said. “So we’re going to lease it out for board meetings, for companies, for workshops, for Louis Vuitton doing their corporate board meeting in Dubai. It is the very top.”  AA:  More puns. "At the top".  This is almost as good as the press coverage of the "world's tallest hotel".  Small and exclusive.  Don't plan a large event it seems.  What sort of "workshops" would be appropriate for this venue?  I'm thinking annual budget setting.  And then perhaps later budget variance analysis.  Pass the canapes, Carl.  
   
3. “It would be a marvellous place for a meeting,” he said. “A large international company could have a corporate event and build some publicity around it. It could be a venue for landmark board meetings.”  AA:  A large international company having a small meeting or function it would appear. But no doubt there will be appeal and clients.  Kidding aside, this could be a useful financial tool.  If a company flew in its board to Dubai and rented space for a board meeting for a transaction, it could be a very good sell signal.
   
4. “The buildings are not investments on their own, but it adds value to the city itself.”  AA:  One hopes the building owner will enjoy a financial return on his investment unlike say another famous Burj in town.  
5. The main restriction for the event spaces would be their limited size. They are small because the building tapers as it rises higher.   AA:  Natural of course.  A very tall building has to taper significantly.  With extremely tall buildings the top floors may be pretty much dead space - small and odd shaped.   
   

The Investment Dar - More Creditors Agree to Restructuring?

Under the headline "80% of Creditors Approve Dar Debt Plan" Maktoob carries a story that additional creditors have agree to the restructuring.

Some quotes and comments.

1. Almost 80% have signed or will sign in the coming days," one person familiar with the plan said. "The number of creditors could reach as much as 90% in the next month or two."  AA:  Since implementation of the deal is being held as more creditors' approval is sought/obtained, I still wonder what the reference to the required two-thirds majority means.  If two-thirds were enough, then it would seem given TID's timeline work should be proceeding full bore.
2. Dar is expected to sell most of its assets to pay its debts after saying in May it had defaulted on a $100 million Islamic bond, or sukuk, as the Shariah compliant investment firm ran into trouble due to the global financial crisis.  AA:  The firm ran into trouble because of its business and business model.  The financial crisis was a contributing factor not the primary cause.  
3. A nine-member committee representing banks and creditors, that include HSBC Holding and Lloyds Banking Group, was set up to help arrange the restructuring of Dar's debt.  AA:  In terms of visibility, the Creditors' Committee has been largely invisible.  Bader Abdullah Al Ali , CEO,  of  Gulf Investment House, a relatively modest-sized regional investment bank has been the public spokesman in all the press statements I've seen.  Perhaps, this is because the majority of holdouts are local banks and it was felt that a local face would be more effective in securing approval from holdouts?
4. "In terms of the process, the legal framework for the proposal has yet to be drawn up," another person said.  AA:  If this is true, another indication that the deal is not yet done.  One would expect that lawyers would be busily scrivening away to meet the desired February close because once they prepare draft legal agreements the creditors have to be given time to review them and provide their comments which leads to another drafting round.
5. "The parties would like to be done by the end of February."  AA:  AA would like to own 23 Severn Road in Hong Kong, though I will settle for 10 Big Wave Bay Road.  Unless there is a miracle, both AA and the "parties" are likely to be disappointed with their respective wishes.   

More on TID by using the label "The Investment Dar" on the home page of this blog.

Burgan Bank Takes Majority Control of Bank of Bagdhdad

Burgan announced on the Kuwait Stock Exchange today that it had bought another 5.3% of Bank of Baghdad taking its total shareholding to 50.6%.  The new shares were acquired for US$10.7 million, thus valuing its investment at US$102.2 million.   Consolidation of results will begin with 1Q2010.

Burgan earlier acquired Baghdad Bank along with Algeria Gulf Bank, Jordan Kuwait Bank and Tunis International Bank from United Gulf Bank.  The deal was announced in May 2008.  Both UGB and Burgan are majority owned by KIPCO Kuwait and occasionally conduct transactions with one another.   The sales were concluded in stages - bank by bank - during 2008 and 2009.

Yes, United Gulf Bank declared a profit on the sale of the four banks to its affiliate company.

And, no, neither UGB or Burgan operate according to "Shari'ah" principles.

[8:51:41]  ِ.بنك برقان يزيد ملكيته فى اسهم بنك بغداد ليصبح شركة تابعة ‏
يعلن سوق الكويت للاوراق المالية بان بنك برقان افاد بانه قد اتم الاستحواذ ‏
على نسبة اضافية تبلغ 5,3% من اسهم بنك بغداد بقيمة 10,700,000 دولار مما ‏
يجعل البنك شركة تابعة لبنك برقان بنسبة ملكية تبلغ 50,6% ،وعليه فسوف ‏
يتم تجميع نتائج اعمال بنك بغداد ضمن البيانات المالية للبنك ابتداء من ‏
بيانات الربع الاول لعام 2010 .‏

Kingdom Holding – Follow Up

So what happened after Kingdom Holding Company ("KHC") made the announcement on 5 January 2010 about its planed reduction in share capital and the donation of 180 million shares of Citigroup stock by Prince AlWaleed Bin Talal to KHC?

On 6 January, trading exploded (in a relative sense) from 1.4 million shares the day before to 28.6 million shares. KHC's share price rose from SAR 4.7 per share to close at SAR 5.15. This gain of SAR0.45 was roughly in line with the value of the Citi stock contributed by Prince AlWaleed (SAR 2.24 billion divided by 6.3 billion shares of stock outstanding).

On 9 January, trading was similarly elevated with 20.5 million shares changing hands. The closing price was SAR 5.00 per share.

Let's look a bit closer at trading on the 9th.  Details are at the Saudi Exchange website.

1. With 6,3 billion shares, 20.5 million shares represent about 0.3% of total shares.  Looking at free float (5%), the day's trading is still small at 6.5% of free float (315 million shares).
2. There were 3,987 transactions for an average "ticket" of 5,152 shares.  Retail.  Small investors.

100 KM Per Liter - Congrats to Bahrain Training Institute Team

Copyright Gulf Daily News Bahrain

Congratulations to the students and faculty at BTI for their very good showing in the annual 2009 Society of Automotive Engineers (SAE) International Super Mileage Competition.  Bahrain competed against 45 other teams and placed a very respectable 19th.  Considering that other competitors had significantly more in the way of facilities and resources, Bahrain did very well indeed.

GDN account here.

Central Bank of Bahrain - Proposed New Regulation on Board Attendance

The CBB issued a consultation paper on 6 January with comments due by 30 January.

The proposal would make two main changes to the CBB's Module HC  "High Level Controls" which specifies corporate governance principles as well as the approval process for certain positions.

1. Board members would be required to attend 75% of all board meetings.  Attendance by video or telephone conference would constitute attendance as well as in person attendance.  The CBB encourages banks to amend their constitutional documents to allow video or telephone conference attendance at board meetings.
   
2. Publication of individual director attendance at (a) time of re-election (b) quarterly on the financial firm's website and (c) annually in the bank's audited financials details of each committee - number of meetings and attendance of individual directors.

Presumably, the consultation document evidences the CBB's concern that directors are not participating at a sufficient level in board meetings.

Sharjah Islamic Bank - AED 55 Million (US$15.1 Million) Exposure to AlGosaibi

You may have seen the reports that at the opening of its new headquarters building Muhammad Abdullah, CEO, of Sharjah Islamic Bank said that SIB's exposure to AlGosaibi is AED 55 million (roughly US$15.1 million).  In this article he is also quoted that the bank's capital adequacy ratio is 27% and that both liquidity and investments are strong.  He said profits for 2009 were good.

Last September SIB disclosed this as well as the fact that it had already taken provisions of 50% of its exposure as well as the fact that it has no exposure to Saad Group.   The Central Bank of the UAE had mandated a 50% provision for both Saad and AlGosaibi and a 100% provision for their banks (Awal and The International Banking Corporation).

SIB has about AED4.1 billion (US$1.1 billion) in shareholders' equity so the residual exposure should be no problem.

RTA Denies Work Stoppage on Dubai Metro

Here's the news item from WAM.

Two major points.

1. Work has not stopped.  AA:  The Reuters story mentioned a slow down in work, not a stoppage.
   
2. RTA also reiterates its contractual commitments to the flow of payments in accordance with the progress of work made in the project.  AA: It's unclear what precisely this means.  Does it mean payments are being made in accordance with progress?  But if this is the case why are the Japanese firms slowing down?  And why are they involved in negotiations with the project owner?  Is it over the work change orders?  Those who know their regional history will remember that contractors in Saudi had a big problem with payment for change orders in the 1980's.  Redec being a prime example, though at the time the Saudi Government claimed that the  the change orders were not properly documented.  Of course, at that time the Saudi Government also was having cashflow problems.  It's an often observed phenomenon that payments on contracts get scrutinized very very carefully and often rejected for technical reasons when cashflow is tight.  That way one technically isn't in default on the payment.  And of course the door is then open to negotiate, which often leads to negotiations on price.
   

Unpaid Japanese Firms to Halt Work on Dubai Metro

Rupert Bumfrey has a post on this.   Here's another from Reuters.

Some comments.

1. It's not unexpected that construction costs would increase from the original estimate.  As per the article costs have doubled.  Culprits are cost inflation in materials and change orders.
2. Also not unexpectedly despite the announcement that contractors would be paid, it does take time for money to move through the system.  While the unnamed company official has denied that they have a receivable of US$5.3 billion, even half that amount is serious money.

The problem may be that there isn't enough available cash.

The Emirate owes substantial unpaid amounts.  Dubai Metro is just one of the Emirate's projects.

New financing seems unlikely.   Government revenues are insufficient.  Shaykh Khalifa hasn't written another check.

This coupled with Shaykh Mohammed's waiving of fines for late CR renewals suggests that more economic pain is on the way in Dubai.  Despite this week's festivities for Burj Khalifa, there is a lot more pain in store for Dubai.

NY Judge Questions Whether Mashreqbank v Al Gosaibi Belongs in NY Courts

Bloomberg reports that New York State Supreme Court Justice Richard Lowe postponed a hearing and other proceedings in Mashreqbank v Ahmad Hamad Al Gosaibi and Brothers asking counsel to provide him arguments why the court case (and AHAB's countersuit against Mashreqbank over which he is also presiding) should be heard in New York.

“I find it incredible that everyone here represents someone over there,” Lowe told lawyers. “All of the parties, all of the witnesses, all of the documents here have to be translated from Arabic and I have to then apply New York state law,” he said.

A decision that Saudi Arabia is the proper forum could have an impact on the case raised by AHAB against Maan AlSanea in New York as well.

Dubai Ports to List on London Stock Exchange - The Not So Hidden Meaning

Wednesday, January 6, 2010

In March 2009 the Board of DP World stated it would evaluate all available options to address its continued disappointment with the markets valuation of the company.
After an extensive period of review with advisers, and discussions with shareholders, the Board of DP World has decided to seek a premium listing on the London Stock Exchange whilst maintaining the existing primary listing on Nasdaq Dubai. It is currently envisaged that we will seek admission for listing in the second quarter of 2010.
The Board remains committed to our shareholders in the region and believe that they will also benefit from this move.

Here's the link to the press release.

There are a couple of messages here:

1. DP World believes that investors on Nasdaq Dubai are not properly valuing it.  That speaks volumes about its view of Nasdaq Dubai and local investors.
2. It will seek its "premium listing" on the LSE and not on one of the other UAE or regional exchanges which similarly conveys its feelings about these exchanges.  For one thing  it would appear that DP World does not consider any of them to be "premium".
   

Interesting ideas from a Dubai Government related company.

The Gulf Curve "Nails" It

A brilliant quote from Saad at The Gulf Curve.

Interesting are days when the payment of an expected coupon payment is considered good news! DP World (BB+, Ba1) announced yesterday that they had paid out the semi-annual coupon payment due on its $1.5 billion sukuk that matures in 2017 - $46.9 million. DP World, which is not part of its parent's debt restructuring plans, also said it had completed a coupon payment of $59.9m for the period ending December 31, 2009 on a $1.75bn bond issue due in 2037.

Global has also announced its making scheduled debt payments as well. 

Quite a different market we're in these days where the major story is debt service not growth.

Allah

This news item doesn't need much comment.

It's not a proper name.

The label "Manifest Absurdity" says it all.

IMF Researchers Review Lobbying by US Financial Firms - Those with the Most to Spend Have the Least to Offer

Three IMF researchers claim those US financial firms who lobbied the hardest engaged in the least sound activities and had the lowest profitability.

Those who can compete in the market do.  Those who can't lobby for profits.

Study here.

More Signs of Distress in Dubai? HH Shaykh Mohammed Lifts Penalties for Non Payment of CR Registration

Today WAM carried an announcement that HH Shaykh Mohammed Bin Rashid Al Maktoum had issued "a decree exempting companies operating in Dubai from all fines imposed on them for not renewing their licences of practicing the profession on time".

The press release notes that:  "The move is part of Sheikh Mohammed's sustained support for the business community in Dubai. It underlines his keenness to find effective alternatives and solutions to spur activities of businesses in a positive approach."

But ever the contrarian AA believes that if this is a significant enough problem that HH is getting involved  then it must be fairly widespread.

And, if so, is that a sign of corporate distress?  Or just that entities who are able to pay are refusing?

Burj Khalifa - Now the Tricky Bit: Filling It Up

The National has an article on the tricky bit that follows the "launch" of a building- attracting tenants and getting them into the building.  This is a case of value for money.  A case yet to be made.